Economic evaluation of green water in cereal crop production: A production function approach

Abstract A great majority of agricultural water is provided by precipitation that is stored in soil moisture, defined as green water. This water evaporates or transpires through plants, and plays a determinative role in crop growth particularly for rainfed agriculture. This study aims to assess the economic value of green water production factor that has often been ignored in the literature, as the focus was mainly given on blue water resources. We employed the production function valuation method and specify a Cobb-Douglas production function, using cereal production in the Czech Republic as a case-study. Green water use was quantified through CROPWAT model, using year-to-year precipitation and evapotranspiration data at a national level for the period 1993-2014. The green water use values were incorporated into the production function, and the marginal value of green water was elicited by computing its marginal contribution with annual average crop market prices. Estimations were based on empirical time-series data at the national level. The marginal value of green water ranged from 17 to 25 USD/1000 m3. To our best of knowledge this is the first study that reveals the value of green water and its contribution in the production value of cereals compared to other production factors. Our findings complement previous studies regarding the crop productivity of green water. We conclude with policy implications of the study findings, highlighting the use of green water value estimations in the compilation of water accounts, as emerged in the System of Environmental-Economic Accounting for Water.